CBSE Class 10 Social Science Money And Credit Notes Set B

Before You Read :

Money: Money is something that can act as a medium of exchange in transaction. In day to day transactions, goods are being bought & sold with the use of money.

Barter System: When goods are directly exhanged for goods and there is no use of money. It is called barter system.

Double Coincidence of wants: When in the exchange, both parties agree to sell and byu each other commodities. It is called double coincidence of wants. In the barter system double coincidence of wants is an essential feature.

Reserve bank of India : R.B.I is the central bank of India which controls the monetary policy of the country. R.B.I supervises the activities of formal sector and keep the track of their activities.

Credit : The activity of borrowing and lending money between the parties.

Collateral : Collateral is an asset that the borrower owns (such as land, building, vehicle, live stocks, deposits with baks) and uses this as a guarantee to a lender until the loan is repaid.

Property such as land titles, deposite with banks. livestock are some common examples of collateral used for borrouring.

SELF HELP GROUP (SHG) : It’s basic idea is to provide financial resources for the poor through organizing the rural poor especially women into small help groups.

Modern forms of Money:

Functions of reserve bank

• Issue the currency
• Monitor the work culture of banks and SHG
• Provide Direction Regarding terms and Interest
• Provide Feedback Regarding Monetary Policies of India
• Hold a part of the cash reserve of the banks

Credit: It refern to an agreement in which the lender supplies the borrower money, good and services in return for the promise of future repayment.

Terms of credit:

SUMMARY

Money as a medium of exchange

Barter System: Goods and Services were directly exchanged without the use of money. This system of exchange was termed a barter system.

Double coincidence of wants is an essential feature of barter system in which both the parties (seller and the buyer) have to agree to buy and sell each other’s commodities.

Money: It acts as an intermediate in the exchange process & it is called a medium of exchange.

Modern Forms of Money

Money is something that can act as a medium of exchange in transactions.

Currency

• In the modern times, paper notes and coins are used as a medium of exchange
• The Reserve Bank of India issues currency notes on behalf of the central government
• According to the law no one can refuse payment made in rupees to settling transactions

Deposits with Banks

• People deposit extra cash in the banks by opening a bank account in their name
• Banks accept the deposits and also pay an amount as interest on the deposit
• Deposits in the bank accounts can be withdrawn on demand are called Demand Deposits
• Cheque: A cheque is a paper instructing the bank to pay a specific amount from the person’s account to the person in whose name the cheque has been issued.

Loan Activities of Banks

• In India, the bank holds about 15% of their deposits as cash to pay to the depositors who might come to withdraw money from the bank on any given day
• Banks mediate between those who have extra funds (the depositors) and those who are in need of these funds (the borrowers).
• Banks charge a higher interest rate on loans than what they offer on deposits. The difference between these interests is the bank’s main source of income.

Two different credit situations

1. Credit (loan) plays a positive role when the borrower is able to return the loan amount on time and also made some profit with the use of that money. For example, Salim, a shoe manufacturer took a loan from different sources to complete the order of 3000 pairs of shoes. In the end, he delivered the order, made a profit, and repaid the loan.

2. In some cases, Credit pushes the borrower into a situation from which recovery is very painful. For example, a small farmer Swapna took a loan for crop cultivation but due to being hit by pests, her crops were destroyed. So she took another loan for spraying pesticides but the production was not enough to repay the loan. So she was caught in debt-trap.